Ugly duckling Hologic has potential to become a swan

In the story of "The Ugly Duckling" by Hans Christian Andersen, a homely little bird matures into a graceful swan. The story comes to mind once again because of Hologic, Inc., a company that was an "ugly duckling" a year ago. The question is will it soon spread its wings as a graceful swan?

Hologic develops, manufactures and supplies diagnostic, medical imaging systems and surgical products for the healthcare needs of women. It has become an industry giant operating in four distinct sectors of the marketplace: Breast Health, Diagnostics, GYN Surgical and Skeletal Health. The company has a market cap of $5.1 billion.

My non-GAAP (non-cash items removed) earnings forecast for 2012 was $1.34 per share with a 12-month target price for the shares of $22 for a potential capital gain of 23 percent. So how did Hologic do? Non-GAAP earnings were $1.38, while the shares closed recently at $20.47 for a 14.74 percent capital gain.

The company's 2012 fourth-quarter earnings came in at $0.37 per share, while revenues increased 26 percent to $588.5 million.

The company recently acquired TCT and Healthcome Technology, both based in China.

For its fiscal year ending Sept. 29, revenues totaled $2 billion, an increase of 11.9 percent or 12.6 percent on a non-GAAP adjusted basis. For the same 12-month period, the company reported a net loss of 28 cents per share, as compared with a positive 59 cents per share for the same period a year ago.

Non-GAAP earnings increased 9.6 percent to $1.38 per share for the 12 months ending Sept. 29, as compared to $1.27 per share for the same period in the prior year.

In its guidance for the first quarter of fiscal 2013, that ended Dec. 29, Hologic is projecting non-GAAP revenues of $640 to $645 million and non-GAAP earnings per share of $0.37. This reflects additional expected interest expense of $45 million related to the financing of the Gen-Probe acquisition, as well as the expected seasonal increase in operating expenses.

For all of fiscal 2013, the company's management is projecting non-GAAP revenues of between $2.61 and $2.64 billion, an increase of 30 to 31 percent over fiscal 2012. Non-GAAP earnings are projected at between $1.56 and $1.58 per share, again reflecting additional interest expense of $180 million related to the Gen-Probe acquisition.

The free cash flow to the firm model yields a result of $44 per share. My non-GAAP 2013 earnings projection is $1.60 per share, with a 12-month projected share price of $23.95, representing a capital gain of 17 percent.